Mar 01 2015

A roadmap for focusing capital on the long term

A summary of ideas for asset owners, asset managers, boards of directors, and corporate management to focus on long-term value creation. 
Asset owners, asset managers, corporate directors, and managers have the ability to unlock system-wide change, yet today too many of these individuals are the source of short-term pressure. An ideal market will always include a mix of investors with different investment time horizons and investment strategies. Time horizons will always vary by industry and asset type. Yet, across industries, long-term thinking goes beyond a product cycle, beyond the average tenure of directors or the CEO, and beyond a typical investment cycle. If the major players in the market, starting with the world’s big asset owners and managers, start to adopt such longer-term perspectives, it can create a virtuous circle across the investment value chain.

In theory, the benefits of long-term corporate strategies should be reflected accurately in the current share price. However, evidence strongly suggests that numerous and substantial market-pricing failures exist and today’s asset prices do not accurately reflect long-term value. The relentless focus on short-term performance and hypersensitivity to the current news cycle have distorted asset prices and market volatility in general. This is self-defeating in that it undermines corporate investment, holds back economic growth, and lowers returns for savers. By investing countercyclically, longterm investors can reap rewards forgone by short-term investors, allocate capital to long-term opportunities, and strengthen the market.

Keyword: Governance & Culture